A record-breaking 150 ‘dog’ investment funds worth £54.4 billion identified in new report

14 September 2020
 

Funds focused on undervalued shares litter the kennel 

  • The latest controversial Spot the Dog report from online investment service Bestinvest returns to name and shame the ‘worst of the worst’ stock-market investment funds
  • The latest report has identified a staggering 150 funds that have consistently underperformed over the last three years, a 65% increase from the 91 funds in the last report and the highest number Bestinvest has on record
  • The current kennel includes a heavyweight pack of 18 Great Dane sized funds, each holding over a billion of assets from prominent fund groups
  • Funds focused on picking shares that the managers believe are undervalued litter the tables, reflecting a market environment that has strongly favoured ‘growth’ and ‘quality’ stocks trading on premium valuations
  • Fund giant Invesco retains the Top Dog spot for the fifth time, with 13 funds worth £11.4 billion of assets. However, change is afoot at Invesco with new managers appointed to some of the key offenders
  • A full copy of the 24-page report is available to download free of charge  at bestinvest.co.uk/spot-the-dog

With the COVID-19 crisis wreaking economic havoc, 2020 has shaped up to be a volatile year for investors. Stock markets plummeted sharply from late February to late March and while markets have bounced back off their lowest point, most investors with funds investing in the UK market will still be nursing steep losses since the start of the year.

Bestinvest acknowledges that even the best fund managers struggled to hold back the tide of the COVID crash, but point out that there have been big disparities in performance between the best and the worst performing funds depending on how they were positioned across different industry sectors. Those who have not reviewed their investments recently would be wise to take a closer look and assess whether they should continue to stick with their existing funds, or whether better recovery potential is available elsewhere.    

To help investors in this task, Bestinvest, the online investment service, will this weekend publish the latest edition of its bi-annual, infamous Spot the Dog report. The report, which has been published regularly since the mid-nineties, names and shames stock-market investment funds that have consistently delivered poor returns in the markets they invest in.

The Bestinvest Spot the Dog report looks at funds accessible to private investors that invest across a wide range of stock-markets around the globe. The report covers funds investing in the UK, Global equities, North America, Europe, Japan, the Asia Pacific and Emerging Markets.

To end up in the kennel, a fund must have met two performance criteria: firstly, it must have delivered a worse return than the market it invests in for three consecutive 12-month periods on the trot; secondly, it must have also underperformed that market by more than 5%, after fees, over the entire three year period under review. Bestinvest applies these twin filters to identify consistent underperformers, rather than funds that may have experienced a short-term run of bad luck, while the 5% underperformance filter will screen out tracker funds that are designed to mimic a stock market index but will typically deliver a slight underperformance of the markets they shadow each year due to their running costs.

The latest report sees 150 funds with a total value of £54.4 billion meet the strict criteria, a sharp increase on the 91 funds identified in the previous report published in February 2020.

While many of the funds in Spot the Dog are Chihuahua sized, with the median fund being just £133 million, 18 funds are classified by Bestinvest as Great Danes, each of which has over £1 billion of assets. These include funds managed by groups such as Invesco, St. James’s Place, Artemis, M&G and Fidelity (see table below).

Jason Hollands, Managing Director at Bestinvest, commented:

“Markets have given investors a rollercoaster ride this year. The COVID crash between late February and the end of March was very rapid but the rebound in stock markets since then has been impressive. However, look beneath the bonnet and there have been big disparities in performance across industry sectors. The relative winners have been areas like technology, online stocks and consumer staples companies, but at the other end of the spectrum major sectors like energy and financials have been hit really hard. This has resulted in very wide disparities in performance between fund managers, depending on where their funds were positioned.

“In particular, we have continued to see wide differences in performance between funds that focus on both ‘quality’ and ‘growth’ companies, where investors are prepared to pay premium valuations, and those funds where the managers target undervalued companies. The underperformance of value-focused funds compared to those targeting ‘growth’ and ‘quality’ stocks is a trend that has been playing out for some time now but during 2020 the gap in fortunes between such funds has become quite extreme. This is clearly evidenced by the high number of funds that focus on undervalued companies landing in Spot the Dog, including previously very strong performing funds such as Fidelity Special Situations and Jupiter Income.

“No investment trend lasts forever and it just might be the case that as the post-lockdown economic recovery phase gathers pace, we will start to see a turn in fortunes for those parts of the market that have been out of favour and the managers who in turn back unloved companies. If and when this happens we can expect that a number of the funds that have currently found themselves in Spot the Dog might make a swift bolt for the exit.

“If you hold any dog funds in your portfolio, you should certainly consider whether or not to stick with them or move elsewhere. However, you should not automatically ditch a fund that has endured a period of disappointing performance without first exploring the reasons why. In some cases, repeatedly poor decision-making or unjustifiably high fees may be to blame. There are a lot of pedestrian funds out there. In others this can be down to a particular approach that has worked well in the past being out of favour with current market trends. In some cases in may make sense to persevere and stay put, if you believe that the factors that have driven the period of underperformance are temporary and will soon lift. However, where there is no turnaround is in sight it might be better to move elsewhere.”

- ENDS -

The Biggest Beasts in Spot the Dog by Fund Size

 

Fund

Size (£ bn)

Sector

3 year under performance

Value of £100 invested after 3 years

1

Invesco High Income Fund (UK)

£3.32

UK All Companies

-26

£67

2

Scottish Wid MM International Equity Fd

£3.02

Global

-13

£117

3

St James's Place Global Equity

£2.44

Global

-16

£112

4

Fidelity Special Situations Fund

£2.25

UK All Companies

-9

£85

5

HL Multi-Manager Income & Growth Trust

£2.00

UK Equity Income

-12

£82

6

Halifax UK Eq Income

£1.79

UK Equity Income

-7

£87

7

Invesco Asian Fund (UK)

£1.55

Asia Pacific Excl. Japan

-7

£110

8

Invesco Income Fund (UK)

£1.54

UK All Companies

-26

£68

9

Invesco European Equity Fund (UK)

£1.53

Europe Excluding UK

-21

£88

10

Artemis Global Income Fund

£1.43

Global Equity Income

-31

£94

11

Dimensional Emerging Mkts Core Eqty

£1.32

Global Emerging Markets

-9

£102

12

Jupiter Income Trust

£1.30

UK Equity Income

-12

£81

13

St James's Place Global

£1.27

Global

-29

£99

14

Man GLG Japan CoreAlpha Fund

£1.25

Japan

-28

£87

15

M&G Recovery Fund

£1.16

UK All Companies

-17

£76

16

Invesco Global Equity Fund (UK)

£1.14

Global

-28

£100

17

St James's Place UK High Income

£1.09

UK Equity Income

-26

£68

18

Dimensional International Core Eq

£1.05

Global

-12

£118

19

St James's Place UK & International Inc

£0.94

Global

-37

£91

20

Fidelity American Fund

£0.93

North America

-10

£132

*This is the extent to which the fund has delivered a lower return over the three years to end June 2020 than the market in which it invests (after fees).  The value of £100 after three years includes the reinvestment of any dividends.

 

The Most Significant Underperformers in Spot the Dog versus the Market 

 

Fund

Sector

3 Year underperformance

Value of £100 invested after 3 years

1

LF ASI Income Focus Fund

UK Equity Income

-39

£55

2

L&G UK Alpha Trust

UK All Companies

-35

£58

3

MI Downing UK Micro-Cap Growth Fund

UK Smaller Cos

-31

£65

4

Invesco UK Strategic Income Fund (UK)*

UK All Companies

-28

£66

5

Invesco UK Eq. High Inc. (was Invesco High Inc)

UK All Companies

-26

£67

6

St James's Place UK High Income

UK Equity Income

-26

£68

7

Invesco UK Equity Income (was Invesco Inc.)

UK All Companies

-26

£68

8

Jupiter UK Growth Fund

UK All Companies

-24

£69

9

UBS UK Equity Income Fund

UK Equity Income

-21

£73

10

L&G UK Special Situations Trust

UK All Companies

-20

£74

11

Janus Henderson UK Equity Income & Gr Fd

UK Equity Income

-20

£74

12

TM Stonehage European All Cap Equity

Europe Excluding UK

-34

£75

13

M&G Recovery Fund

UK All Companies

-17

£76

14

Liontrust UK Mid Cap Fund

UK All Companies

-19

£76

15

Jupiter UK Alpha Fund

UK All Companies

-17

£76

16

ASI UK Income Unconstrained Equity

UK Equity Income

-16

£77

17

Jupiter Growth & Income Fund

UK All Companies

-16

£78

18

L&G UK Equity Income Fund

UK Equity Income

-16

£78

19

Schroder UK Equity Fund

UK All Companies

-14

£80

20

BNY Mellon Equity Income Booster Fund

UK Equity Income

-13

£80

         
 

* Has recently been merged into Invesco UK Equity Income (7th in table)

   

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